AIP is a Delaware limited partnership that has been registered with the SEC under the Investment Advisers Act of 1940, as amended (“Advisers Act”), since 2001, and offers, along with its affiliates, various investment products and services through managed account and investment portfolio structures. The general partner of AIP is Morgan Stanley Alternative Investments LLC (“MSAI”) and the limited partner of AIP is Morgan Stanley Investment Management Inc. (“MSIM”). AIP, MSAI and MSIM are all wholly owned subsidiaries of Morgan Stanley, a corporation whose shares are publicly held and traded on the new York Stock Exchange under the symbol “MS”. Morgan Stanley is a global financial services firm engaged in securities trading and brokerage activities, as well as providing investment banking, research and analysis and financial services.

Overview AIP’s advisory business consists primarily of identifying investment opportunities and making investments in diversified portfolios of traditional and non-traditional investment funds. AIP provides discretionary and non-discretionary investment management services and products to institutional and individual investors. AIP offers the flexibility of investing through individually customized managed accounts, dedicated single investor private funds and commingled funds. AIP advises on a (i) discretionary basis to privately and publicly offered pooled investment vehicles; and (ii) discretionary and non-discretionary basis to (a) private funds set up for qualifying individual investors and (b) separately managed accounts consisting of a customized investment portfolio (“SMAs”).

The investment vehicles and private funds for which AIP provides investment management services (as the managing member, general partner or the investment manager) are collectively referred to herein as the “Funds”. For purposes of convenience, the Funds and SMAs are referred to herein as “Clients” or “Accounts”.

AIP allocates assets to investment vehicles managed by AIP or its affiliates and unaffiliated third party investment managers; and, with respect to certain investment strategies, to equity or debt securities and over-the-counter derivatives and futures. Contract types include fixed income, forwards, spot foreign exchange and swaps. The underlying investment funds in which the Clients invest in are referred to throughout this Brochure as the “Underlying Investment Funds” and the investment managers who manage the Underlying Investment Funds are referred to as the “Underlying Investment Managers.” In addition to providing advisory services to Clients as described above, AIP may also act as the adviser and/or general partner of certain other Funds (or other similar vehicles) which are established for the purpose of making Co-Investments (defined below) or investing in Targeted Opportunities (defined below) alongside Underlying Investment Funds in which Clients have invested (collectively, the “Co-Investment Partnerships”). AIP will tailor its services to meet the needs of Clients by managing portfolios in accordance with the investment guidelines and restrictions set forth in an investment management agreement (with respect to SMAs) and the applicable governing materials (with respect to Funds). Investment advice is provided by AIP directly to each Fund in accordance with its particular investment objectives and not individually to the Fund’s investors. AIP’s advisory business focuses on providing discretionary and, in certain cases, non- discretionary, investment management services to Clients across five strategies: (1) fund of hedge funds; (2) risk premia; (3) alternative lending; (2) private markets fund of funds; and (3) customized portfolio solutions. AIP does not participate in any wrap fee programs.

Hedge Fund Solutions

The Hedge Fund Solutions business invests in the following assets classes: (i) Underlying Investment Funds (“Fund of Hedge Funds”), (ii) risk premia (“Risk Premia Investments”) and (iii) Alternative Lending Securities (as defined below). The Hedge Fund Solution’s investment team offers fund portfolio solutions to clients via customized hedge fund portfolios and/or investment recommendations into non-affiliated, single and multi-strategy hedge funds, including non-discretionary advisory services, Customized Advisory Portfolio Solutions (“CAPS”).

Fund of Hedge Funds. The Hedge Fund Solution’s Fund of Hedge Funds strategy focuses the allocation of assets to (a) Underlying Investment Funds managed by Underlying Investment Managers who employ a variety of non-traditional investment strategies; (b) Underlying Investment Funds managed in traditional style; and (c) secondary market purchases of interests in Underlying Investment Funds. Furthermore, a Client may invest in privately held companies or publicly traded companies in which the Client invests alongside an Underlying Investment Fund that is typically an Underlying Investment Fund in which a Client has also invested directly (“Targeted Opportunities”).

As part of the due diligence process for determining the primary Underlying Investment Funds to which Client assets are allocated, the Hedge Fund Solution’s investment team analyzes the quality of an each underlying Investment Manager’s resources, controls, infrastructure and service providers through on-site meetings with management, background investigations, examination of fund documents, audited financial statements and discussions with the Investment Fund’s independent service providers. For Underlying Investment funds purchased in secondary market transactions, operational due diligence may be scaled back and calibrated to the size and details of the transaction, with a focus on transaction-specific risks. In addition, for a fee, the Hedge Fund Solutions investment team provides operational due diligence services to AIP’s affiliate, Morgan Stanley Smith Barney LLC (“MSSB” or “Wealth Management”). Risk Premia. Certain Clients may, as a part of their investment strategy, invest in Underlying Investment Funds managed by an Affiliated Adviser (as defined in Item 10) that invest in a broad set of Risk Premia Investments, currently expected under normal market conditions to constitute a diverse set of different strategies or factors, including, without limitation value, carry, curve, trend/momentum, mean reversion, volatility, congestion opportunistic, hedge and other similar strategies, as well as equity specific low-beta, size, value, quality and momentum strategies. The Affiliated Adviser intends to implement the Risk Premia strategy primarily through total return swaps, and will gain such exposure through multiple counterparties. In addition, Risk Premia may also include futures, listed options and common stocks Alternative Lending. The alternative lending fund (the “Alternative Lending Fund”) will seek to achieve its investment objective by investing in Alternative Lending Securities that generate interest or other income streams that offer access to credit risk premium (as defined below). “Alternative Lending Securities” are loans originated through non-traditional or alternative, lending platforms, or securities that provide the Alternative Lending Fund with exposure to such instruments. The “credit risk premium” is the difference in return between obligations viewed as low risk, such as high-quality, short-term government debt securities or bonds of a similar duration and risk profile, and securities issued by private entities or other entities which are subject to credit risk. The credit risk premium is positive when interest payments or other income streams received in connection with a pool of Alternative Lending Securities, minus the principal losses experienced by the pool, exceed the rate of return for risk-free obligations.

The Alternative Lending Fund may invest in a broad range of Alternative Lending Securities, including, but not limited to, (1) consumer loans; (2) small business loans, receivables and/or merchant cash advances; (3) specialty finance loans, including, but not limited to, education loans, elective medical loans, automobile purchases, equipment finance, transportation leasing, short-term real estate financing or other specialty offerings such as purchasing and financing of future payment streams or asset-based financing; (4) tranches of alternative lending securitizations, including, but not limited to, residual interests and/or majority-owned affiliates (MOAs); and (5) to a lesser extent, fractional interests in alternative lending securities and other types of equity, debt or derivative instruments that AIP believes are appropriate. The Alternative Lending Fund may also purchase bonds and other debt securities backed by a pool of Alternative Lending Securities.

Private Markets Fund of Funds

AIP’s Private Markets Fund of Funds strategy consists of: (a) primary capital commitments to private markets Underlying Investment Funds; (b) direct co-investments, which are generally minority investments in operating companies, primarily alongside existing Underlying Investment Managers (“Co-Investments”); and (c) secondary market purchases of Investment Fund interests. Clients may also invest in investments other than Underlying Investment Funds and Co-Investments. Portfolio Solutions The Portfolio Solutions Group (“PSG”) implements discretionary investment advice by integrating traditional and non-traditional investments through a single portfolio construction philosophy and approach. The multi-asset portfolios may include equity, fixed income and alternative investments including hedge funds, private equity, and real assets. The investments are implemented through various methods, including, but limited to, pooled investment vehicles, separately managed accounts, direct investments, over the counter instruments, forwards, and swaps. PSG may also act as a fiduciary advisor, a “manager of mangers”, for large pools of assets. As a fiduciary, PSG assists Clients in establishing investment policies, guidelines and restrictions. In addition, PSG makes and implements asset allocation decisions; and selects, supervises and monitors other managers, which may include affiliated and non-affiliated entities. As fiduciary advisor, PSG will report to the fiduciary or other person responsible for the overall management of the large pool of assets. As of December 31, 2018, AIP managed $19,583,024,140 in Client assets on a discretionary basis and $687,238,399 on a non-discretionary basis for a total of $20,270,262,539 in Regulatory Assets Under Management. please register to get more info

Hedge Fund Solutions Fund of Hedge Funds For advisory services rendered to Clients pursuing a fund of hedge funds investment strategy, AIP is generally entitled to a management fee in an amount (on an annualized basis) of up to (i) 1.50% of the net asset value of the applicable Fund or SMA, or (ii) 1.50% of the aggregate capital commitment to the applicable Fund or SMA. In the case of certain Funds, the fees charged by AIP may decrease over time upon the occurrence of certain events, as described in the governing materials of such Funds or SMAs. In some cases, AIP or one of its affiliates is also entitled to and receive performance based fees or allocations which may be up to 10% of the investor’s net profits, and may be subject to a minimum hurdle rate and/or high water mark.

In addition, for certain Funds, an affiliate is generally entitled to carried interest with respect to each investor equal to 10% of such investor’s profits, subject to satisfaction of an 8% internal rate of return, compounded annually.

Funds pursuing a fund of hedge funds investment strategy generally book fees (and as applicable, incentive allocation estimates) on a monthly or quarterly basis.

AIP also charges a fee MSSB for providing services related to (i) conducting investment and operational due diligence on hedge funds; (ii) providing portfolio advisory services in connection with customized mandates; and (iii) managing a list of hedge funds into which qualified advisory Wealth Management clients may invest.

Alternative Lending

For advisory services rendered to the Alternative Lending Fund, AIP is entitled to a management fee in an amount of 0.75% on an annualized basis of the Alternative Lending Fund’s Managed Assets. “Managed Assets” means the total assets of the Alternative Lending Fund (including any assets attributable to borrowings for investment purposes) minus the sum of the Alternative Lending Fund’s accrued liabilities (other than liabilities representing borrowings for investment purposes). AIP has agreed to waive the management fees for the first year of the Alternative Lending Fund’s operations, through September 30, 2019.

Risk Premia At this time an AIP affiliate manages a single Risk Premia fund (the “Risk Premia Fund”) which is only offered to Funds and SMAs managed by AIP. Currently no management or other fees are paid to either the affiliate or AIP in connection with advisory services for the Risk Premia Fund, and compensation is derived from management fees and other fees payable by the Funds or SMAs that invest in the Risk Premia Fund (see “Fund of Hedge Funds” discussion in this Section 5 above for a range of potential fees charged). In the future, Risk Premia products and Risk Premia Fund offerings to third party investors may be subject to fees payable to AIP or its affiliates.
Private Markets Fund of Funds
For investment advisory services rendered to the Funds pursuing a private markets fund of funds investment strategy, AIP is generally entitled to a management fee in an amount (on an annualized basis) of up to 1.75% of either (i) the investor’s aggregate capital commitment to the Fund, (ii) the investor’s attributable share of the aggregate capital commitments made by the Fund to its Underlying Investment Funds (based on the acquisition costs of such investments), (iii) the investor’s attributable share of the aggregate capital contributions made by the Fund to its Underlying Investment Funds (excluding amounts constituting a return of a capital contribution by such underlying investments) and (iv) in respect of, the fee is based on the investor’s aggregate contributions with respect to Underlying Investment Funds plus the investor’s attributable share of the aggregate unfunded capital commitments made by the applicable Fund to its Underlying Investment Funds. In the case of certain Funds, the fees charged by AIP may decrease over time upon the occurrence of certain events, as described in the governing materials of such Funds.

Funds that pursue a private markets fund of funds strategy, the management fee will be charged in addition to an investor’s capital commitment. In most cases, AIP or one of its affiliates is also entitled to receive performance based fees, which vary.

AIP or an affiliate of the AIP is generally entitled to carried interest with respect to each investor generally ranging from 5% - 15% of such investor’s profits, subject to satisfaction of an internal rate of return ranging from 6% - 10%, compounded annually.

Funds pursuing a private markets investment strategy generally book fees on a quarterly basis and some of these Funds are required to pay the management fee quarterly in advance. AIP does not provide refunds for such fees paid in advance.

In connection with providing advisory services to the Co-Investment Partnerships, the fees paid to AIP (if any) are determined on an arm’s length basis at the time such Co-Investment Partnerships are established.

In limited circumstances, AIP may hire an independent third-party broker who offers asset purchase opportunities in certain secondary transactions. In these instances, AIP allocates all fees and commissions related thereto pro rata to participating Clients. Broker-dealers, including affiliates of AIP, may act as placement agents to assist in the placement or sale of a Fund’s interests. Any placement fee and/or investor servicing fee will be paid by the applicable investor in the Fund and is in addition to the investor’s capital commitment or capital contribution, as applicable. The amount of any placement fee and/or investor servicing fee will be described in the placement agent’s point of sale letter. However, the placement agents or distributors may in their sole discretion waive the placement fees and/or investor servicing fees payable by an investor, including an investor that is an employee or affiliate of AIP.
Portfolio Solutions Group
For discretionary services rendered to investors in commingled funds, AIP is generally entitled to a fee in an amount (on an annualized basis) of up to .90% of the net asset value of the applicable account. Fees are recorded monthly within a Fund. Separately Managed Accounts

The fees that AIP charges for separate account management services vary based on the particular circumstances of the Client or as otherwise negotiated. AIP’s services are terminable by either party in accordance with the applicable contractual notice provision. Generally, fees on separate accounts are billed quarterly in arrears, however, in some cases they are billed quarterly in advance. The timing of fee payments will vary in accordance with Clients’ preferences. In addition to being subject to the fees AIP charges, the portion of each Client account that is invested in a Fund may also bear a proportionate share of the advisory fees and other expenses of the Fund; however such fees and expenses may be waived and/or rebated at AIP’s discretion.
Expenses Charged to Clients/Fee Discounts
The fees and expenses that an investor may expect to incur include, but are not limited to, the operating expenses and performance-based incentive fees or allocations of expenses of the Underlying Investment Funds in which the Clients invest. Operating expenses typically consist of management fees, administration fees, professional fees (i.e., audit and legal fees), and other operating expenses. With respect to Funds that pursue a private markets fund of funds strategy, the management fee will be in addition to an investor’s capital commitment.

Depending upon the terms of particular arrangements with Clients, AIP may select or recommend that certain service providers to Clients (including accountants, administrators, lenders, bankers, brokers, agents, attorneys, consultants and investment or commercial banking firms) and/or their affiliates perform services for Clients (the cost of which generally will be borne by the Client). These service providers may also provide goods or services to or have business, personal, political, financial or other relationships with AIP or its affiliates. Such service providers may be investors in a fund, AIP’s affiliates, sources of investment opportunities or co-investors. These other services and relationships may influence AIP in deciding whether to select or recommend such a service provider to perform services for Clients. Notwithstanding the foregoing, investment transactions on behalf of Clients that require the use of a service provider generally will be allocated to service providers on the basis of best execution, the evaluation of which includes, among other considerations, such service provider’s provision of certain investment related services and research that AIP believes to be of benefit to the Clients. In certain circumstances, service providers, or their affiliates, may charge different rates or have different arrangements for services provided to Morgan Stanley, AIP or its affiliates, which may result in more favorable rates or arrangements than those payable by Clients. Clients are generally required to bear out-of-pocket costs and expenses incurred in connection with deals that are not ultimately completed. AIP has adopted a policy related to the allocation of broken-deal expenses in which AIP generally allocates to Clients in a manner to be fair and equitable. Typically, these expenses include (i) legal, accounting, advisory consulting or other third-party expenses in connection with making an investment that is not ultimately consummated; (ii) all fees (including commitment fees), costs and expenses of lenders, investment banks and other financing sources in connection with arranging financing for a proposed investment that is not ultimately made; and (iii) any break-up fees, deposits or down payments of cash or other property which are forfeited in connection with a proposed investment that is not ultimately made (in each case, to the extent such investment is not ultimately made by another Client). Subject to applicable law and the relevant fund's governing materials, AIP may enter into arrangements with certain investors that have the effect of altering or supplementing the terms of such investors’ investments in a Fund, including with respect to waivers or reductions of the management fee. please register to get more info

In some cases, AIP has entered into performance fee or allocation arrangements with qualified investors and such fees or allocations are subject to individualized negotiation with each such investor. Any performance fee received by AIP or its affiliates will be in compliance with the requirements of Section 205(a)(1) of the Advisers Act, and Rule 205-3 thereunder. In certain circumstances, the general partner (or the equivalent) of a Fund may defer or waive all or any part of the performance fee or allocation.

Because AIP professionals may manage assets for several investment companies, pooled investment vehicles and/or other accounts (including accounts of institutional clients and pension plans), there may be an incentive to favor one Client over another resulting in conflicts of interest. For instance, AIP may receive fees from certain Clients that are charged a higher fee than the fee AIP receives from another Client. In those instances, the portfolio managers may have an incentive to favor the higher and/or performance-based fee Client accounts over another Client account. In addition, a conflict could exist to the extent that AIP has proprietary investments in certain Funds, where AIP investment professional have personal investments in certain Funds or when certain Funds are investment options in Morgan Stanley employee benefits and/or deferred compensation plans. The AIP investment professionals may have an incentive to favor these Clients over others. If Clients engage in short sales of securities of the type in which other Clients invest, AIP could be seen as harming the performance of the Client for the benefit of the Clients engaging in short sales if the short sales cause the market value of the securities to fall. An AIP investment professional may also be faced with a conflict of interest when allocating investment opportunities, given the possibility of greater fees from accounts that pay performance-based fees as opposed to accounts that do not pay performance- based fees.

For additional information on allocation issues and AIP’s practices, please refer to Item 12 “Brokerage Practices”.

To address these types of conflicts, AIP has adopted policies and procedures pursuant to which allocation decisions may not be influenced by fee arrangements and investment opportunities will be allocated in a manner that AIP believes to be consistent with its obligations as an investment adviser. To further manage these types of conflicts, AIP has implemented Side-by- Side Management guidelines, which are designed to set out specific requirements regarding the side-by-side management of traditional investment portfolios (e.g., long-only portfolios) and alternative investment portfolios (e.g., hedge fund portfolios) in order to manage potential conflicts of interest, including without limitation, those associated with any differences in fee structures, investments in the alternative investment portfolios by MSIM or its employees and trading-related conflicts (including conflicts of interest that may also be raised when MSIM investment teams take conflicting (i.e., opposite direction) positions in the same or related securities for different accounts). In addition, AIP has established a Side-by-Side Management Subcommittee to help ensure that such conflicts are reviewed and managed appropriately. The Side-by-Side Subcommittee meets on a regular basis and is comprised of representatives from several business areas and control functions. The responsibilities and duties of the Side-by-Side Subcommittee include, among other things, establishing and reviewing appropriate reporting to monitor and review investment and related activities in side-by-side management situations for the relevant business areas. Conflicts Arising from Non-Discretionary Accounts In connection with AIP CAPS service, AIP also manages assets for Clients for which it does not exercise investment discretion, but rather AIP make investment recommendations to Clients, who must then specifically direct AIP to purchase or sell an investment (the “Non-Discretionary CAPS Accounts”). In many cases, AIP make recommendations to Non-Discretionary CAPS Accounts consistent with the investment decisions made and implemented by AIP on behalf of one or more Clients over which it has investment discretion (the “AIP Discretionary Accounts”) (e.g., purchase or sale transactions for the same Underlying Investment Fund).

A potential conflict of interest may arise when simultaneous management of Non-Discretionary CAPS Accounts and AIP Discretionary Accounts exists, because AIP generally receives higher fees, which may include performance fees, from AIP Discretionary Accounts. As a result, AIP may have a financial incentive to allocate opportunities to invest in Underlying Investment Funds to AIP Discretionary Accounts over Non-Discretionary CAPS Accounts. In addition, AIP’s ability to manage this potential conflict of interest is limited by a number of factors, including:

1. AIP may not have full authority over the aggregate amount that Clients, discretionary and non-discretionary, are able to make in an Underlying Investment Fund or the timing of such investments. Many Underlying Investment Funds restrict the amount and timing of investment opportunities (sometimes referred to as offering “limited capacity”). Underlying Investment Funds also may allow investment by some types of Clients, but not others (i.e., the Underlying Investment Funds may prefer some types of Clients over others).

2. AIP may not have the ability to cause a Client to act promptly in response to a recommendation that AIP make’s with regard to an investment for a Non-Discretionary CAPS Account. As a result, there may be substantial delay between the date of AIP’s recommendation and the date on which an investment can be implemented.

As a result of these factors, and notwithstanding the potential conflict of interest, AIP generally cannot guarantee that Non-Discretionary CAPS Accounts will be able to invest in any Underlying Investment Fund, even though AIP Discretionary Accounts may have been able to invest in the same Underlying Investment Fund. AIP allocates investment opportunities to Non- Discretionary CAPS Accounts, while maintaining investment allocation procedures for AIP Discretionary Accounts and Non-Discretionary CAPS Accounts as described below. AIP will determine whether an Investment Fund should be recommended for investment by one or more Non-Discretionary CAPS Accounts separately from the determination that it make to invest in an Investment Fund on behalf of AIP Discretionary Accounts, although these determinations may be made at or about the same time. If AIP decides to recommend investment in an Investment Fund for a Non-Discretionary CAPS Account, AIP will generally make a prompt recommendation to the Non-Discretionary CAPS Accounts for which AIP believes the Investment Fund would be an appropriate investment. AIP also determines, which determination may be made in consultation with the Underlying Investment Manager, what portion of the opportunity to invest in the Underlying Investment Fund should be preliminarily allocated for anticipated investment by Non-Discretionary CAPS Accounts. At the time that an investment recommendation is made to a Non-Discretionary CAPS Account, AIP will have a good faith reasonable belief that, if acted upon promptly by the Client in accordance with the terms of the investment advisory agreement, a sufficient amount of capacity in the Underlying Investment Fund should be available. If the Client does not act promptly on the recommendation, and in any event that at least fifteen (15) days prior to the first proposed date of investment in the Investment Fund, then there is a substantial risk that no investment in the Underlying Investment Fund will be available for the Client’s Non-Discretionary CAPS Account. If the aggregate demand for investment in the Underlying Investment Fund by Non- Discretionary CAPS Accounts exceeds the amount of investment opportunity allocated to Non- Discretionary CAPS Accounts, AIP generally will allocate the investment opportunity pro rata among the Non-Discretionary CAPS Accounts for which all pre-requisites to investment have been satisfied for the investment period for the applicable Underlying Investment Fund. As a result of these allocation procedures, a Non-Discretionary CAPS Account may have a reduced allocation or no allocation to certain Underlying Investment Funds. The risk of a Non- Discretionary CAPS Account receiving a reduced allocation or no allocation to an Underlying Investment Fund will be increased if the Client does not promptly satisfy all pre-requisites to making an investment in the Underlying Investment Fund, including providing written direction to us and assuring that the Client account has sufficient funds to complete the investment. please register to get more info

AIP generally provides investment advice to registered and unregistered investment companies, pooled investment vehicles, separate accounts, funds of one, corporate/business entities, high net worth individuals, endowments, foundations, charitable institutions, sovereign wealth funds, foreign regulated funds such as UCITs, pension plans and domestic and foreign government agencies. In addition, AIP, through its Hedge Fund Solutions business, provides hedge fund manager research services to MSSB, as previously discussed in Item 5.

Investors who wish to participate in Funds are generally required to invest a certain minimum amount, which generally ranges (depending on the Fund) from $25,000 to $35 million. Certain Funds may have additional minimum investment requirements and may require that an investor is, among other things, an “accredited investor”, as defined under the Securities Act of 1933 (the “1933 Act”), as amended, and the applicable rules promulgated by the SEC thereunder, and a “qualified purchaser”, as defined under the Investment Company Act of 1940, as amended, and the applicable rules promulgated by the SEC thereunder (the “1940 Act”). The minimum account size for a separately managed account is negotiated on a case-by-case basis. Generally, a minimum amount of $25 million is required if a Wealth Management client wishes to engage AIP in connection with a customized portfolio account solution. please register to get more info

LOSS
Overview
All investing and trading activities risk the loss of capital. Although AIP will attempt to moderate these risks, no assurance can be given that investment activities will be successful or that an investor will not suffer losses. Investing involves a risk of loss that all investors should be prepared to bear.

The core of AIP’s investment approach is a research intensive strategy and manager selection process intended to identify value in market inefficiencies and other situations outside the mainstream of conventional investing while minimizing risk. Investments for Accounts managed on a discretionary basis are selected opportunistically and managed dynamically from a very wide range of alternative liquid and private market strategies appropriate for the Account. The offering documents and/or governing materials and, in applicable cases, an investment management agreement provide a fuller description of the types of Underlying Investment Funds, Co-Investments and securities, as applicable, in which Client’s may invest. AIP’s employees use a wide range of resources to identify attractive Underlying Investment Funds, and Co-Investments and promising investment strategies for consideration in connection with investments by Clients. AIP’s main sources of information include contacts with industry executives, established business relationships and research materials prepared by others.
Investment Strategies

Fund of Hedge Funds

AIP’s fund of hedge funds investment process consists of (a) investing in funds managed by Underlying Investment Managers who employ a variety of non-traditional investment strategies; (b) investing in funds managed by Underlying Investment Managers in a traditional style; and (c) secondary market purchases of Underlying Investment Funds. Non-traditional investment strategies include a wide range of arbitrage (convertible bond, statistical, term structure, merger, mortgage backed security, global bond and capital structure), long-short equities and bonds, convergence, directional trading, distressed securities and options. These strategies allow Underlying Investment Managers the flexibility to use leverage or short-sale positions to take advantage of perceived inefficiencies across capital markets and are referred to as “alternative investment strategies.” “Traditional” investment companies are characterized generally by long- only investments and limits on the use of leverage. Underlying Investment Funds following alternative investment strategies (whether hedged or not) are often described as “hedge funds.” AIP may also seek to gain investment exposure, on behalf of an Account, to certain Underlying Investment Funds or to adjust market or risk exposure by, among other things, entering into derivative transactions such as total return swaps, options and futures, and investments in the Risk Premia Fund. Some of AIP’s Hedge Fund Solutions Clients may also invest in Targeted Opportunities as part of their investment strategy. For certain Funds that employ a fund of hedge funds investment strategy, AIP may manage a portion of such Fund's assets in overlay strategies related to portable alpha applications of its alternative investments. Portable alpha is the process whereby alpha (defined as the return in excess of the risk-free rate) is transported onto a traditional asset class return (such as equities or fixed income) to enhance the return of the monies allocated to the underlying asset class without necessitating an alteration in the investor's asset allocation. For example, AIP may enter into a total return swap (with an external counterparty) on behalf of the Fund for the total return on the S&P 500 Index in exchange for payments of Libor + 50 basis points. The net return to the investor = (Fund of hedge funds return + S&P 500) - (Libor + 50 basis points).

In some situations, an Underlying Investment Manager will agree to accept direct investments from Clients or the clients of AIP’s affiliates into an Underlying Investment Fund. AIP provides investment recommendations and/or portfolio construction advisory services focusing on such Underlying Investment Funds in arrangements where the Clients retain investment discretion. For these Client-direct investments, AIP does not utilize leverage.
Risk Premia
Certain Clients may, as a part of their investment strategy, invest in Underlying Investment Funds managed by an Affiliated Adviser that invest in a broad set of Risk Premia Investments, currently expected under normal market conditions to constitute a diverse set of different strategies or factors, including, without limitation value, carry, curve, trend/momentum, mean reversion, volatility, congestion opportunistic, hedge and other similar strategies, as well as equity specific low-beta, size, value, quality and momentum strategies.

A risk budgeting layer is implemented to adjust the Risk Premia strategy’s portfolio based on the Affiliated Adviser’s fundamental understanding of the premia. The Affiliated Adviser intends to implement the Risk Premia strategy primarily through total return swaps, and will gain such exposure through multiple counterparties. It is expected that these total return swaps will be based on custom risk premia indices, each with a published methodology containing the index- specific rulebook regarding construction.

The Risk Premia strategy may also buy and sell futures, listed options and common stocks. The Affiliated Adviser will generally invest in Risk Premia Investments directly, but may also invest indirectly, through Underlying Investment Funds who invest in Risk Premia strategies. Risk Premia Investments seek to generate returns through particular investments in the broader securities markets that are designed to give exposure to independent risk factors, such as price momentum, size risk, commodity carry risk, and currency carry risk. These strategies call for investments in securities possessing one or more attributes that have historically been associated with, or are otherwise believed to offer, attractive investor returns as a result of their exposure to a particular risk factor.
Alternative Lending
The Alternative Lending Fund seeks to achieve its investment objective by investing in Alternative Lending Securities that generate interest or other income streams that offer access to credit risk premium. AIP source’s the Alternative Lending Securities in which the Alternative Lending Fund invests through various alternative lending platforms (i.e., a lending marketplace or lender other than a traditional lender such as a bank) (each, a “Platform”). The Alternative Lending Fund may invest in a broad range of Alternative Lending Securities, including, but not limited to, (1) consumer loans; (2) small business loans, receivables and/or merchant cash advances; (3) specialty finance loans, including, but not limited to, education loans, elective medical loans, automobile purchases, equipment finance, transportation leasing, short-term real estate financing or other specialty offerings such as purchasing and financing of future payment streams or asset-based financing; (4) tranches of alternative lending securitizations, including, but not limited to, residual interests and/or majority-owned affiliates (MOAs); and (5) to a lesser extent, fractional interests in alternative lending securities and other types of equity, debt or derivative instruments that AIP believes are appropriate. The Alternative Lending Fund may also purchase bonds and other debt securities backed by a pool of Alternative Lending Securities. Initially, the Alternative Lending Fund’s portfolio will consist substantially of whole loans.
Private Markets Fund of Funds

The Private Markets Fund of Funds strategies consists of three primary investment approaches: primary commitments to Underlying Investment Funds; Co-Investments, primarily alongside AIP’s existing primary Underlying Investment Managers; and secondary market purchases of existing private markets Underlying Investment Funds and other private markets assets. AIP’s Private Markets Fund of Funds strategies may, in some cases, make investments in other Underlying Investment Funds (both on a primary or secondary basis) or Co-Investments, such as illiquid private assets sourced from other alternative investment vehicles and/or publicly traded securities of private markets businesses or funds (“Other Investments”).

The Private Markets Fund of Funds investment process generally consists of making primary commitments to and investing in private markets funds managed by Underlying Investment Managers who employ a variety of non-traditional private markets investment strategies, including buyouts, growth capital, venture capital, distressed companies, special situations, mezzanine, real assets partnership interests purchased and sold on the secondary markets, emerging markets and other categories. A Private Markets Fund of Funds Client may also make Other Investments and Co-Investments in any of the aforementioned strategies as part of its overall investment strategy.
Portfolio Solutions Group
PSG has developed proprietary approaches for measuring the risk and return of alternative investments and incorporating them within a broader portfolio. PSG designs and manages highly customized multi-asset investment portfolios and advises its Clients on all aspects of portfolio construction, including: (i) analyzing manager performance (both hedge funds and traditional managers); (ii) creating strategic portfolios that include equities, fixed income, alternative investments; and (iii) developing commitment strategies for private markets investments, real estate investments and portfolio transition plans.
Risk Considerations
All investing and trading activities risk the loss of capital. Although AIP will attempt to moderate these risks, no assurance can be given that the investment activities of an account or fund we advise will achieve the investment objectives of such account or fund or avoid losses. Direct and indirect investing in securities involves risk of loss that you should be prepared to bear.

Set forth below are some of the material risk factors that are often associated with the types of investment strategies and techniques and types of securities relevant to many of our Clients. The information included in this Brochure does not include every potential risk associated with an investment strategy, technique or type of security applicable to a particular client account. Clients are urged to ask questions regarding risks applicable to a particular strategy or investment product, read all product-specific risk disclosures and consult with their own legal, tax and financial advisors to determine whether a particular investment strategy or type of security is suitable for their account in light of their specific circumstances, investment objectives and financial situation.

General Risks of Investing in a Fund of Funds Investment Strategy Inadequate Return. No assurance can be given that the returns on an Underlying Investment Fund will be commensurate with the risk of your investment. You should not commit money to an Account unless you have the resources to sustain the loss of your entire investment. Any losses are borne solely by you and not by AIP or its affiliates. Multiple Layers of Fees. By investing in Underlying Investment Funds indirectly through an Account, you bear asset-based fees and performance-based fees or allocations at the Underlying Investment Fund level, in addition to those payable to AIP in its capacity as investment adviser. Similarly, you bear a proportionate share of the other operating expenses of the Underlying Investment Funds in which your Account is invested; and of the Account itself. If you meet the conditions imposed by the Underlying Investment Managers, you could invest directly with such Underlying Investment Managers, including investments into certain Underlying Investment Funds available directly to Clients through Hedge Fund Solutions, Private Markets and PSG.

An Underlying Investment Manager may receive incentive-based fees to which it is entitled irrespective of the performance of the other Underlying Investment Funds and the Account generally. As a result, an Underlying Investment Manager with positive performance may receive compensation from the Account, in the form of the asset-based fees, incentive-based fees and other expenses payable by the Account as an investor in the relevant Underlying Investment Fund, even if the Underling Investment Fund’s overall returns are negative. The investment decisions of the Underlying Investment Funds are made by the Underlying Investment Managers independently of each other so that, at any particular time, one Underlying Investment Fund may be purchasing shares in an issuer that at the same time are being sold by another Underlying Investment Fund. Transactions of this sort could result in an Account directly or indirectly incurring certain transaction costs without accomplishing any net investment result, which may result in the pursuit of opposing investment strategies or result in performance that correlates more closely with broader market performance. Because an Account may make additional investments in or redemptions from Underlying Investment Funds only at certain times according to limitations set out in the governing materials of each such fund, an Account from time to time may have to invest some of its assets temporarily in money market securities or money market funds, among other similar types of investments.

Independence of Third-Party Fund Management. Underlying Investment Funds are generally managed by third-party managers unaffiliated with AIP and over which AIP does not exercise control. An Underlying Investment Manager may receive performance or incentive fees or allocations to which it is entitled, without regard to both the performance of the other Underlying Investment Funds in the Account and the performance of the overall Account. An Underlying Investment Manager to an Underlying Investment Fund with positive performance may receive compensation, even if the Account’s aggregate returns are negative.

Illiquidity of Interests; Limitations on Transfer; No Market for Fund Interests. You will not be permitted to transfer your interest in a Fund without the consent of the general partner/managing member/board of directors of the Fund. Furthermore, the transferability of your interest will be subject to certain restrictions contained in the governing materials of a Fund, and will be affected by restrictions imposed under applicable securities laws. The general partner/managing member/board of directors of a Fund will not consent to any transfer or other disposition that could cause the Fund to be treated as a “publicly traded partnership” under the Internal Revenue Code. There is currently no market for the interests, and it is not contemplated that one will develop. You should only acquire interests if you are able to commit your funds for an indefinite period of time.

Hedging Strategy Risk: Certain Accounts, pooled investment vehicles, and Underlying Investment Funds, may choose, but are not required, to engage in transactions designed to reduce the risk or to protect the value of their investments, including securities and currency hedging transactions. These hedging strategies could involve a variety of derivative transactions, including transactions in forward, swap and option contracts or other financial instruments with similar characteristics, including, without limitation, forward foreign currency exchange contracts, currency and interest rate swaps, options and short sales (collectively “Hedging Instruments”). Certain risks associated with Hedging Instruments are further detailed below under “Use of Derivatives”. Hedging against a decline in the value of a portfolio position does not eliminate fluctuations in the values of portfolio positions or prevent losses if the values of those positions decline, but establishes other positions designed to gain from those same developments, thus offsetting the decline in the portfolio positions’ value. While these transactions may reduce the risks associated with an investment by the account or the Underlying Investment Funds, the transactions themselves entail risks that are different from those of the investments of the accounts or Underlying Investment Funds. The risks posed by these transactions include, but are not limited to, interest rate risk, market risk, and the risk that these complex instruments and techniques will not be successfully evaluated, monitored or priced; the risk that counterparties will default on their obligations, liquidity risk and leverage risk. Changes in liquidity may result in significant, rapid and unpredictable changes in the prices for derivatives. Thus, while the accounts and Underlying Investment Funds may benefit from the use of Hedging Instruments, unanticipated changes in interest rates, securities prices or currency exchange rates may result in a poorer overall performance for the accounts and Underlying Investment Funds than if they had not used such Hedging Instruments. Absence of Regulatory Oversight. Certain of the Funds and the Underlying Investment Funds are not registered as investment companies under the 1940 Act. Certain of the Funds, as investors in these Underlying Investment Funds, do not have the benefit of the protections afforded by the 1940 Act to investors in registered investment companies. The Underlying Investment Managers may not be registered as investment advisers under the Advisers Act. Although AIP periodically receives information from each Underlying Investment Fund regarding its investment performance and investment strategy, AIP may have little or no means of independently verifying this information. An Underlying Investment Fund may use proprietary investment strategies that are not fully disclosed, which may involve risks under some market conditions that are not anticipated. Underlying Investment Managers may change their investment strategies (i.e., may experience style drift) at any time. In addition, AIP has no direct control over any Underlying Investment Funds’ investment management, brokerage, custodial arrangements or operations and must rely on the experience and competency of the Underlying Investment Manager in these areas. The performance of the Funds depends on AIP’s success in selecting Underlying Investment Funds and the allocation and reallocation of assets among those Underlying Investment Funds.

The Underlying Investment Funds typically do not maintain their securities and other assets in the custody of a bank or a member of a securities exchange, as generally required of registered investment companies. It is anticipated that the Underlying Investment Funds generally will maintain custody of their assets with brokerage firms that do not separately segregate such customer assets as required in the case of registered investment companies. Under the provisions of the Securities Investor Protection Act of 1970, as amended, the bankruptcy of any such brokerage firm could have a greater adverse effect on the Funds than would be the case if custody of assets were maintained in accordance with the requirements applicable to registered investment companies. There is also a risk that an Underlying Investment Manager could convert assets committed or paid to it by the Funds for its own use or that a custodian could convert assets committed to it by an Underlying Investment Manager to its own use.

Underlying Investment Funds may permit or require that redemptions of interests be made in kind. Upon its redemption of all or a portion of its interest in an Underlying Investment Fund, a Fund may receive securities that are illiquid or difficult to value. In such a case, AIP would seek to cause the Fund to dispose of these securities in a manner that is in the best interest of the Fund. A Fund may be unable to withdraw from an Underlying Investment Fund except at certain designated times (if at all), limiting AIP’s ability to redeem assets from an Investment Fund that may have poor performance or for other reasons. Inside Information. From time to time, AIP may come into possession of material, non-public information concerning an entity in which an Account has invested, or proposes to invest. Possession of that information may limit AIP’s ability to buy or sell securities of the entity on your behalf. Long-Term Investments; No Current Return. The return of capital in cash or other property, the realization of gains in cash or other property (if any), and actual distribution thereof to any Account generally will occur only upon collection of distributions from the Underlying Investment Funds in which the Accounts invest. In the case of such Underlying Investment Funds, timing of distributions will be completely out of AIP’s control. The ability of an Account to return capital will depend in part upon the withdrawal rights provided by the corresponding Underlying Investment Funds in which the Account is invested. Underlying Investment Funds may only permit withdrawals on an annual or less frequent basis and may have the ability to suspend withdrawals. Additionally, an Investment Fund may make distributions in-kind. An Account may be unable to withdraw cash from its corresponding Underlying Investment Funds whenever it desires. General Economic and Market Conditions. The success of an Account’s activities may be affected by general economic and market conditions, such as interest rates, availability of credit, inflation rates, economic uncertainty, changes in laws, and national and international political circumstances. These factors may affect the level and volatility of security prices and liquidity of the Account’s investments. Unexpected volatility or lack of liquidity, such as the general market conditions that have prevailed recently, could impair the Account’s profitability or result in its suffering losses.

Estimates: In most cases, AIP will have no ability to assess the accuracy of the valuations received from an Underlying Investment Manager. Furthermore, the net asset values or other valuation information received by us from such Underlying Investment Managers will typically be estimates only, subject to revision through the end of each Investment Fund’s annual audit. Revisions to the gain and loss calculations will be an ongoing process, and no net capital appreciation or depreciation figure can be considered final until the annual audit of each Underlying Investment Fund is completed.

Conflicts of Interest. As a diversified global financial services firm, Morgan Stanley engages in a broad spectrum of activities including financial advisory services, asset management activities, sponsoring and managing private investment funds, engaging in broker-dealer transactions and other activities. In the ordinary course of business, Morgan Stanley engages in activities in which Morgan Stanley’s interests or the interests of its Clients may conflict with the interests of a Fund or investors. The potential for Morgan Stanley, as placement agent, to receive compensation in connection with an investor’s investment in a Fund presents such placement agent with a potential conflict of interest in recommending that such investor purchase interests in a Fund. Such placement agent may in its sole discretion waive the placement fees payable by an investors. You should take such payment arrangements into account when evaluating any recommendations relating to your investments. In addition, AIP addresses conflicts through disclosure investors. Should any transactions that present a potential conflict of interest actually arise, AIP may, in certain situations choose to seek the approval of investors, limited partners and/or advisory committee for the respective Fund with respect to conflicts of interest or approvals required under the Advisers Act, including Section 206(3) and/or the relevant governing materials. AIP may also choose to seek the approval of investors with respect to certain conflict situations or matters under the Advisers Act. Emerging Markets. An Underlying Investment Fund selected for a portfolio may invest in assets in emerging markets. Investing in emerging markets involves risks and special considerations not typically associated with investing in other more established economies or securities markets. Such risks may include: (i) increased risk of confiscatory taxation or nationalization or expropriation of assets; (ii) greater social, economic, and political uncertainty, including war; (iii) higher dependence on exports and the corresponding importance of international trade; (iv) greater volatility, less liquidity, and smaller capitalization of securities markets; (v) greater volatility in currency exchange rates; (vi) greater risk of inflation; (vii) greater controls on foreign investment and limitations on repatriation of invested capital and on the ability to exchange local currencies for U.S. dollars; (viii) increased likelihood of governmental involvement in, and control over, the economies; (ix) governmental decisions to cease support of economic reform programs or to impose centrally planned economies; (x) differences in auditing and financial reporting standards which may result in the unavailability of material information about issuers; (xi) less extensive regulation of the securities markets; (xii) longer settlement periods for securities transactions and less reliable clearance and custody arrangements; and (xiii) less developed corporate laws regarding protection of investors and fiduciary duties of officers and directors.

Legal and Regulatory Risks. The regulation of the U.S. and non-U.S. securities and futures markets and Underlying Investment Funds has undergone substantial change in recent years and such change may continue. In particular, in light of the recent market turmoil there have been numerous proposals, including bills that have been introduced in the U.S. Congress, for substantial revisions to the regulation of financial institutions generally. Some of these bills introduced in Congress would require additional regulation of private fund managers, including requirements for such managers to register as investment advisers under the Advisers Act and disclose various information to regulators about the positions, counterparties and other exposures of the private funds managed by such managers. The effect of regulatory change on the Underlying Investment Funds, while impossible to predict, could be substantial and adverse. In addition, the practice of short selling has been the subject of numerous temporary restrictions, and similar restrictions may be promulgated at any time. Such restrictions may adversely affect the returns of Underlying Investment Funds that utilize short selling.

Regulation as a Bank Holding Company. Morgan Stanley is a Bank Holding Company (a “BHC”) and has elected to be treated as a “financial holding company” (“FHC”) under the BHCA. FHC status is available to BHCs which meet certain criteria and may engage in a broader range of activities than BHCs which are not FHCs. The activities of BHCs and their affiliates are subject to certain restrictions imposed by the BHCA and related regulations. Because Morgan Stanley may be deemed to “control” a Fund within the meaning of the BHCA, these restrictions could apply to such Fund as well. These restrictions may materially adversely affect the Fund, among other ways, by imposing a maximum holding period on some or all of the Fund’s investments; limiting the amount of an entity’s beneficial ownership interests which the Fund may hold; restricting the ability of us, Morgan Stanley, any of its affiliates which serve as general partner or manager of the relevant Fund (in either case, the “Affiliated General Partner”), or their affiliates to invest in the Fund or to participate in the management and operations of the entities in which the Fund or an Underlying Investment Fund invests; or affecting either AIP’s ability to pursue certain strategies within a Fund’s investment program or AIP’s ability or the ability of the Fund, Morgan Stanley, any Affiliated General Partner, or any affiliates to invest in certain Underlying Investment Funds. Certain BHCA regulations may also require aggregation of the positions owned, held, or controlled in Client and proprietary accounts by Morgan Stanley and its affiliates (including without limitation, us, and any Affiliated General Partner) with positions held by the Funds (and, in certain instances, one or more Underlying Investment Funds). Moreover, Morgan Stanley may cease in the future to qualify as an FHC, which may subject the Fund to additional restrictions or cause the general partner to dissolve the Fund. Additionally, there can be no assurance either that the bank regulatory requirements applicable to Morgan Stanley and the Funds will not change or that any such change will not have a material adverse effect on the Funds.

Morgan Stanley may in the future, in its sole discretion, restructure a Fund, an Affiliated General Partner or AIP to reduce or eliminate the impact or applicability of these bank regulatory restrictions on the Accounts. Morgan Stanley may seek to accomplish this result by causing another entity to replace a Fund’s current Affiliated General Partner (if any), transferring ownership of AIP or that of such Affiliated General Partner, reducing the amount of Morgan Stanley’s investment in the Fund (if any), effecting any combination of the foregoing, or implementing such other means as it determines in its sole discretion. Any such transferee may be unaffiliated with Morgan Stanley. In connection with any such change, AIP may. in its sole discretion assign AIP’s right to receive a performance fee or allocation, if any or, with the required consent, cause another entity to be admitted to a Fund for the purpose of receiving the performance fee or allocation. Dodd- Frank Act: Section 619 of the Dodd-Frank Act (commonly referred to as the “Volcker Rule”), along with regulations issued by the Federal Reserve and other U.S. federal financial regulators (“Implementing Regulations”), generally prohibit “banking entities” (which term includes bank holding companies and their affiliates) from investing in, sponsoring, or having certain types of relationships with, private equity funds or hedge funds (referred to in the Implementing Regulations as “covered funds”). Banking entities (including Morgan Stanley and its affiliates) were required to bring their activities and investments into conformance with the Volcker Rule by July 21, 2015, subject to certain extensions granted by the U.S. Federal Reserve that allow Morgan Stanley and its affiliates until July 21, 2022 at the latest to bring certain of their covered fund activities and investments into compliance with certain aspects of the Volcker Rule. Volcker Rule. The Volcker Rule and the Implementing Regulations impose a number of restrictions on Morgan Stanley and its affiliates that could affect us, a covered fund offered by us, the general partner of those funds, and the limited partners of such funds. For example, to sponsor and invest in certain covered funds, Morgan Stanley must comply with the Implementing Regulations’ “asset management” exemption to the Volcker Rule’s prohibition on sponsoring and investing in covered funds. Under this exemption, investments made by Morgan Stanley (aggregated with certain affiliate and employee investments) in a covered fund must not exceed 3% of the covered fund’s outstanding ownership interests, and Morgan Stanley’s aggregate investment in covered funds must not exceed 3% of Morgan Stanley’s Tier 1 capital. In addition, the Volcker Rule and the Implementing Regulations prohibit Morgan Stanley and its affiliates from entering into certain other transactions (including “covered transactions” as defined in Section 23A of the U.S. Federal Reserve Act, as amended) with or for the benefit of, covered funds that it sponsors or advises. For example, Morgan Stanley may not provide loans, hedging transactions with extensions of credit or other credit support to covered funds it advises. While AIP endeavors to minimize the impact on covered funds and the assets held by them, Morgan Stanley’s interests in determining what actions to take in complying with the Volcker Rule and the Implementing Regulations may conflict with AIP’s interests and the interests of the private funds, the general partner and the limited partners of the private funds, all of which may be adversely affected by such actions. The foregoing is not an exhaustive discussion of the potential risks the Volcker Rule poses for us.

Referendum on the UK’s EU Membership. Accounts and pooled investment vehicles advised by AIP, as well as the Underlying Investment Funds, may make investments in the UK (before and after its departure from the EU), other EU member states and in non-EU countries that are directly or indirectly affected by the exit of the UK from the EU. Adverse legal, regulatory or economic conditions affecting the economies of the countries in which an AIP client conducts its business (including making investments) and any corresponding deterioration in global macro- economic conditions could have a material adverse effect on the partnership’s prospects and/or returns. Potential consequences to which an AIP client may be exposed, directly or indirectly, as a result of the UK referendum vote include, but are not limited to, market dislocations, economic and financial instability in the UK and other EU member states, increased volatility and reduced liquidity in financial markets, reduced availability of capital, an adverse effect on investor and market sentiment, Sterling and Euro destabilization, reduced deal flow in the AIP client’s target markets, increased counterparty risk and regulatory, legal and compliance uncertainties. Any of the foregoing or similar risks could have a material adverse effect on the operations, financial condition, returns, or prospects of the AIP client, AIP and/or sub-advisers, if any, in general. The effects on the UK, European and global economies of the exit of the UK (and/or other EU member states during the term of the AIP client) from the EU, or the exit of other EU member states from the European monetary area and/or the redenomination of financial instruments from the Euro to a different currency, are impossible to predict and to protect fully against.
Risk Considerations Associated with Underlying Investment Funds
The specific types of Underlying Investment Funds in which Accounts invest are subject to the following principle risks, among others: Restricted and Illiquid Investments. Although AIP anticipates that most Underlying Investment Funds will invest primarily in publicly traded securities, such funds may invest a portion of the value of their total assets in restricted securities and other investments that are illiquid. Restricted securities are securities that may not be sold to the public without an effective registration statement under the 1933 Act, as amended, or that may be sold only in a privately negotiated transaction or pursuant to an exemption from registration. When registration is required to sell a security, an Underlying Investment Fund may be obligated to pay all or part of the registration expenses, and a considerable period may elapse between the decision to sell and the time the Underlying Investment Fund may be permitted to sell a security under an effective registration statement. If adverse market conditions developed during this period, an Underlying Investment Fund might obtain a less favorable price than the price that prevailed when the Underlying Investment Fund decided to sell. Underlying Investment Funds may be unable to sell restricted and other illiquid securities at the most opportune times or at prices approximating the value at which they purchased the securities. An Account’s interests in Underlying Investment Funds are themselves illiquid and subject to substantial restrictions on transfer. An Account’s ability to liquidate an interest in an Underlying Investment Fund will likely be limited. An Account is typically subject to any lock-up periods of Underlying Investment Funds beginning at the time of an Account’s initial investment in an Underlying Investment Fund, during which the Account may not withdraw its investment. In addition, certain Underlying Investment Funds may at times elect to suspend completely or limit withdrawal rights for an indefinite period of time in response to market turmoil or other adverse conditions (such as those experienced by many hedge funds during late 2008 into 2009). Underlying Investment Funds may also assess fees for redemptions or other withdrawals. The limited liquidity of these Underlying Investment Funds’ interests may adversely affect an Account were it required to sell or redeem such interests at an inopportune time. An Account may need to suspend or postpone opportunities for investor liquidity if it is unable to dispose of its interests in Underlying Investment Funds in a timely manner.

Some of the Underlying Investment Funds may hold a portion of their assets in “side pockets” which are sub-accounts within the Underlying Investment Funds in which certain assets (which generally are illiquid and/or hard to value) are held and segregated from the Underlying Investment Fund’s other assets until some type of realization event occurs. Side pockets thus have restricted liquidity, potentially extending over a much longer period than the typical liquidity an investment in the Underlying Investment Funds may provide. Should a Fund seek to liquidate its investment in an Underlying Investment Fund that maintains these side pockets, such Fund might be unable to fully liquidate its investment without delay, which could be considerable. In such cases, until a Fund is permitted to fully liquidate its interest in the Underlying Investment Fund, the value of its investment in such Underlying Investment Fund could fluctuate based on adjustments to the fair value of the side pocket as determined by the Underlying Investment Manager. In addition, if an Underlying Investment Fund establishes a side pocket prior to a Fund’s investing in the Underlying Investment Fund; such Fund may not be exposed to the performance of the Underlying Investment Fund’s assets held in the side pocket. Use of Derivative. Certain Accounts (including, without limitation, Accounts that make Risk Premia Investments), and some or all of their respective Underlying Investment Funds, may invest in, or enter into, derivative or derivative transactions (“Derivatives”). Derivatives are financial instruments that derive their performance, at least in part, from the performance of any underlying asset, index or interest rate Derivative instruments include, but are not limited to futures, swaps, options and structured investments. Derivatives entered into by an Underlying Investment Fund can be volatile and involve various types and degrees of risk, depending upon the characteristics of a particular Derivative and the portfolio of the Account or Underlying Investment Fund. Certain derivatives transactions may give rise to a form of leverage. Leverage magnifies the potential for gain and the risk of loss. If an Account or an Underlying Investment Fund invests in Derivatives at an inopportune time or incorrectly judges market conditions, the investments may lower the return of the Fund or Underlying Investment Fund or result in a loss. An Account or an Underlying Investment Fund also could experience losses if Derivatives are poorly correlated with its other investments, or if the Account or Underlying Investment Fund is unable to liquidate the position because of an illiquid secondary market. Highly Volatile Markets. The prices of commodities contracts and all Derivatives, including futures and options, can be highly volatile. Underlying Investment Funds are subject to the risk that trading activity in securities in which the Underlying Investment Funds invest may be dramatically reduced or cease at any time, whether due to general market turmoil, problems experienced by a single issuer or a market sector or other factors. If trading in particular securities or classes of securities is impaired, it may be difficult for an Underlying Investment Fund to properly value any of its assets represented by such securities. Leverage Utilized by Underlying Investment Funds. Underlying Investment Funds may utilize leverage in their investment activities. Specifically, some or all of the Underlying Investment Funds may make margin purchases of securities and, in connection with these purchases, borrow money from brokers and banks for investment purposes. Although leverage will increase investment returns if an Underlying Investment Fund earns a greater return on the investments purchased with borrowed funds than it pays for the use of those funds, the use of leverage will decrease the return on an Underlying Investment Fund if the Underlying Investment Fund fails to earn as much on investments purchased with borrowed funds as it pays for the use of those funds. The use of leverage will in this way magnify the volatility of changes in the value of an investment in the Underlying Investment Funds.

Commercial/Business Risks. It is anticipated that certain of the Accounts will make investments in some Underlying Investment Funds, which have a limited operating history, a manager with limited fund of hedge funds management experience, or both. Such investments have inherently greater risk than more established fund of hedge funds. Accordingly, the growth of these Underlying Investment Funds may require significant time and effort resulting in a longer investment horizon than can be expected with lower risk investment alternatives. Such investments can experience failure or substantial declines in value at any stage. There is no assurance that such investments by certain of the Accounts will be successful. Distressed Securities. Certain of the companies in whose securities the Underlying Investment Funds may invest may be in transition, out of favor, financially leveraged or troubled, or potentially troubled, and may be or have recently been involved in major strategic actions, restructurings, bankruptcy, reorganization or liquidation. These characteristics of these companies can cause their securities to be particularly risky, although they also may offer the potential for high returns. These companies’ securities may be considered speculative, and the ability of the companies to pay their debts on schedule could be affected by adverse interest rate movements, changes in the general economic climate, economic factors affecting a particular industry or specific developments within the companies. An Underlying Investment Fund’s investment in any instrument is subject to no minimum credit standard and a significant portion of the obligations and preferred stock in which an Underlying Investment Fund may invest may be less than investment grade (commonly referred to as junk bonds), which may result in the Underlying Investment Fund’s experiencing greater risks than it would if investing in higher rated instruments. Short Sales. An Underlying Investment Fund may attempt to limit its exposure to a possible market decline in the value of its portfolio securities through short sales of securities that its Underlying Investment Manager believes possess volatility characteristics similar to those being hedged. An Underlying Investment Fund may also use short sales for non-hedging purposes to pursue its investment objectives if, in the Underlying Investment Manager’s view, the security is over-valued in relation to the issuer’s prospects for earnings growth. Short selling is speculative in nature and, in certain circumstances, can substantially increase the effect of adverse price movements on an Underlying Investment Fund’s portfolio. A short sale of a security involves the risk of an unlimited increase in the market price of the security that can in turn result in an inability to cover the short position and a theoretically unlimited loss. No assurance can be given that securities necessary to cover an Underlying Investment Fund’s short position will be available for purchase.

Conflicts of Interest. Due to differing objectives, differing constraints, and/or differing Underlying Investment Funds available to discretionary and non-discretionary Clients, there may be circumstances when investment actions made on behalf of discretionary Clients differ from the investment recommendations provided to non-discretionary Clients.
Risks Considerations Associated with Risk Premia

Projections. The Account may make investments relying upon projections developed by AIP or other third party source concerning such company’s future performance and cash flow, or the structure and persistence of a risk premia opportunity. Projections are inherently subject to uncertainty and factors beyond the control of AIP, the issuer or such other sources. The inaccuracy of certain assumptions, the failure to satisfy certain financial requirements and the occurrence of other unforeseen events could impair the ability of an issuer in which the Account invests (or to which it obtains exposure through a swap or other derivative) to realize projected values.

Availability of Investment Opportunities for the Accounts. The business of identifying and structuring investments in, or related to, the types contemplated by the Accounts are competitive and involves a high degree of uncertainty. Furthermore, the availability of investment opportunities generally is subject to market conditions and competition from other investors as well as the prevailing regulatory or political climate. The Accounts may incur significant expenses investigating potential investments which are ultimately not consummated, including expenses relating to due diligence, transportation, legal expenses, and the fees of other third- party advisors. Even if attractive investment opportunities are identified by the portfolio management team, there is no certainty that the Account will be permitted to invest in such opportunity (or invest in such opportunity to the fullest extent desired). Accordingly, there can be no assurance that AIP will be able to identify and complete attractive investments in the future or that it will be possible to invest fully Investors’ subscriptions to the Funds or client funds in the SMAs, as the case may be. In addition, AIP may not be able to obtain as favorable terms as it would otherwise in a less competitive investment environment. Expedited Transactions. Investment analyses and decisions by AIP may frequently be required to be undertaken on an expedited basis to take advantage of investment opportunities. In such cases, the information available to AIP at the time of an investment decision may be limited and AIP may not have access to detailed information regarding the investment opportunity, in each case, to an extent that may not otherwise be the case had AIP been afforded more time to evaluate the investment opportunity. Therefore, no assurance can be given that AIP will have knowledge of all circumstances that may adversely affect an investment.

General Risks of Derivatives. An alternative risk premia portfolio could use various derivatives and related investment strategies, as described below. Derivatives may be used for a variety of purposes including hedging, risk management, portfolio management or to earn income. Any or all of the investment techniques described herein may be used at any time and there is no particular strategy that dictates the use of one technique rather than another, as the use of any derivative by an Account is a function of numerous variables, including market conditions.

A derivative is a financial instrument the value of which depends upon (or derives from) the value of another asset, security, interest rate or index. Derivatives may relate to a wide variety of underlying instruments, including equity and debt securities, indices, interest rates, currencies and other assets. Certain derivative instruments which an Account may use and the risks of those instruments are described in further detail below. An Account may also utilize derivatives techniques, instruments and strategies that may be newly developed or permitted as a result of regulatory changes, to the extent such techniques, instruments and strategies are consistent with an Account’s investment objective and policies. Such newly developed techniques, instruments and strategies may involve risks different than or in addition to those described herein. No assurance can be given that any derivatives strategy employed by an Account will be successful. The risks associated with the use of derivatives are different from, and possibly greater than, the risks associated with investing directly in the instruments underlying such derivatives. Derivatives are highly specialized instruments that require investment techniques and risk analyses different from other portfolio investments. The use of derivative instruments requires an understanding not only of the underlying instrument but also of the derivative itself. Certain risk factors generally applicable to derivative transactions are described below.

Derivatives are subject to the risk that the market value of the derivative itself or the market value of underlying instruments will change in a way adverse to an Account’s interests. An Account bears the risk that the Adviser may incorrectly forecast future market trends and other financial or economic factors or the value of the underlying security, index, interest rate or currency when establishing a derivatives position for an Account. Derivatives may be subject to pricing (or mispricing) risk. For example, a derivative may become extraordinarily expensive (or inexpensive) relative to historical prices or corresponding instruments. Under such market conditions, it may not be economically feasible to initiate a transaction or liquidate a position at an advantageous time or price. Many derivatives are complex and may be valued subjectively. The pricing models used by an Account to value derivatives may not produce valuations that are consistent with the values an Account realizes when it closes or sells an over-the-counter (“OTC”) derivative. Valuation risk is more pronounced when an Account enters into OTC derivatives with specialized terms because the market value of those derivatives in some cases is determined in part by reference to similar derivatives with more standardized terms. Improper valuations can result in increased payment requirements to counterparties, over- and/or under- collateralization, and/or a loss of value to an Account.

Using derivatives as a hedge against a portfolio investment subjects an Account to the risk that the derivative will have imperfect correlation with the portfolio investment, which could result in a portfolio incurring substantial losses. This correlation risk may be greater in the case of derivatives based on an index or other basket of securities, as the portfolio securities being hedged may not duplicate the components of the underlying index or the basket may not be of exactly the same type of obligation as those underlying the derivative. The use of derivatives for “cross hedging” purposes (using a derivative based on one instrument as a hedge on a different instrument) may also involve greater correlation risks.

While using derivatives for hedging purposes can reduce an Account’s risk of loss, it may also limit an Account’s opportunity for gains or result in losses by offsetting or limiting an Account’s ability to participate in favorable price movements in portfolio investments.

Use of derivatives for non-hedging purposes may result in losses which would not be offset by increases in the value of portfolio securities or declines in the cost of securities to be acquired. In the event that an Account enters into a derivatives transaction as an alternative to purchasing or selling the underlying instrument or in order to obtain desired exposure to an index or market, an Account will be exposed to the same risks as are incurred in purchasing or selling the underlying instruments directly as well as additional risks associated with derivatives transactions, such as counterparty credit risk.

The use of certain derivatives transactions, including OTC derivatives, involves the risk of loss resulting from the insolvency or bankruptcy of the counterparty to the contract or the failure by the counterparty to make required payments or otherwise comply with the terms of the contract. In the event of default by a counterparty, an Account may have contractual remedies pursuant to the agreements related to the transaction, but there is no guarantee that the Portfolio will be able to enforce such contractual remedies in a timely manner, or at all. While some derivatives are cleared through a regulated central clearinghouse, many derivatives transactions are not entered into or traded on exchanges or in markets regulated by the CFTC or the SEC. Instead, such bi-lateral OTC derivatives are entered into directly by an Account and a counterparty. OTC derivatives transactions can only be entered into with a willing counterparty that is approved by the Adviser. Where no such counterparty is available, an Account will be unable to enter into a desired OTC transaction. An Account may be required to make physical delivery of portfolio securities underlying a derivative in order to close out a derivatives position or to sell portfolio securities at a time or price at which it may be disadvantageous to do so in order to obtain cash to close out or to maintain a derivatives position. As a result of the structure of certain derivatives, adverse changes in, among other things, interest rates, volatility or the value of the underlying instrument can result in losses substantially greater than the amount invested in the derivative itself. Certain derivatives have the potential for unlimited loss, regardless of the size of the initial investment.

Certain derivatives may be considered illiquid and therefore subject to an Account’s limitation on investments in illiquid securities.

Derivatives transactions conducted outside the United States may not be conducted in the same manner as those entered into on U.S. exchanges, and may be subject to different margin, exercise, settlement or expiration procedures. Brokerage commissions, clearing costs and other transaction costs may be higher on foreign exchanges. Many of the risks of OTC derivatives transactions are also applicable to derivatives transactions conducted outside the United States. Derivatives transactions conducted outside the United States are subject to the risk of governmental action affecting the trading in, or the prices of, foreign securities, currencies and other instruments. The value of such positions could be adversely affected by foreign political and economic factors; lesser availability of data on which to make trading decisions; delays in an Account’s ability to act upon economic events occurring in foreign markets; and less liquidity than U.S. markets.

Currency derivatives are subject to additional risks. Currency derivatives transactions may be negatively affected by government exchange controls, blockages, and manipulations. Currency exchange rates may be influenced by factors extrinsic to a country’s economy. There is no systematic reporting of last sale information with respect to foreign currencies. As a result, the available information on which trading in currency derivatives will be based may not be as complete as comparable data for other transactions. Events could occur in the foreign currency market which will not be reflected in currency derivatives until the following day, making it more difficult for an Account to respond to such events in a timely manner.

OTC Options. Unlike exchange-traded options, which are standardized with respect to the underlying instrument, expiration date, contract size and strike price, the terms of OTC options generally are established through negotiation between the parties to the options contract. Unless the counterparties provide for it, there is no central clearing or guaranty function for an OTC option. Therefore, OTC options are subject to the risk of default or non-performance by the counterparty to a greater extent than exchange-traded options. Additional Risks of Options Transactions. The risks associated with options transactions are different from, and possibly greater than, the risks associated with investing directly in the underlying instruments. Options are highly specialized instruments that require investment techniques and risk analyses different from those associated with other portfolio investments. Options may be subject to the risk factors generally applicable to derivatives transactions described herein, and may also be subject to certain additional risk factors, including:  The exercise of options written or purchased by an Account could cause an Account to sell portfolio securities, thus increasing an Account’s portfolio turnover.  An Account pays brokerage commissions each time it writes or purchases an option or buys or sells an underlying security in connection with the exercise of an option. Such brokerage commissions could be higher relative to the commissions for direct purchases of sales of the underlying securities.

 A portfolio’s options transactions may be limited by limitations on options positions established by the SEC, the CFTC or the exchanges on which such options are traded.

 The hours of trading for exchange listed options may not coincide with the hours during which the underlying securities are traded. To the extent that the options markets close before the markets for the underlying securities, significant price and rate movements can take place in the underlying securities that cannot be reflected in the options markets.

 Index options based upon a narrower index of securities or other assets may present greater risks than options based on broad market indexes, as narrower indices are more susceptible to rapid and extreme fluctuations as a result of changes in the values of a small number of securities or other assets.

 An Account is subject to the risk of market movements between the time that an option is exercised and the time of performance thereunder, which could increase the extent of any losses suffered by an Account in connection with options transactions.

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